Name : Ammar Shabbir Morawala

STD ID : 20163 - 19993

Assignment # 1

CHAPTER # 2

Answer # 1
Price Traceys demand Darrens Demand Total Market Demand
A 20 2800 1600 4400
B 40 1500 1100 2600
C 60 500 900 1400
D 800 100 700 800
E 100 0 600 600
Answer # 2
Income is a determinant of demand and if income rises the demand for most good rises. So in this case
due to a decrease in income the demand for sofa falls. In case of recession the income is effected and
may decrease.

Answer # 3
Down Fall in Supply of Potatoes

The Cost of Production of Potatoes rises.

A low quality crop was harvested
Farmers Find other crops more profitable

Rise in Supply of Leather

The Cost of Production of leather falls.

Producers expect the price of leather to fall, through this short term supply increases
An increase in leather imports

Answer # 4
a. Shift Right
b. Move up
c. Move down
d. Move Left
e. Move Right
f. Move Right
g. Shift up

Answer # 6
a. Prices rises so as quantity (demand will shift to the right, butter and magarine are substitute)
b. Prices falls, quantity rises (demand moves to the right, butter and yogurt are in joint supply)
c. Prices falls and quantity also falls (demand moves to the left because butter and bread are
complimentary goods)
d. Prices rises so as to the quantity (demand moves to right bread and butter are complementary)
e. Prices rises and quantity rises or falls depending on the relative sizes of the shifts in demands
and supply.
f. Price rises and quantity falls (supply shift to the left)
g. Price rises and quantity falls depending on the size of the shift in demand and supply (Demand
shifts to the right as more health conscious people starts buying butter, the supply shifts to the
left due to increase in cost of production.
Answer # 7
Price Elasticity of Demand

The law of demand states that as price increases, less quantity is demanded. This is why the demand
curves slopes downwards to the right. Because price and quantity move in opposite direction and the
price elasticity of demand is always negative.

Price Elasticity of Supply

The supply curve is a line that slopes up to the right. Thus as the price increases more quantity is
supplied. Because price and quantity move in the same direction and the supply curve the price
elasticity of supply is usually positive

Answer # 9
The income effect will be relatively large. The substitute effect will be relatively small. The actual
elasticity will depend on the relative size.

Answer # 10
Two Brands of coffee are likely to have the highest cross price elasticity of demand because they are
closer substitute than coffee and tea.

Answer # 11
Elasticity means how much people change their behavior when they face an increase in price. If they
change a lot, the elasticity of demand is high and vice versa. In the long run, people have more time to
change their behavior
 CHAPTER # 1
Question # 1:
Strengths:
1. Unlimited Liability Partnership:

1. A partnership is easy to form with little legal formalities, easier to manage and run.
2. More capital can be raised by the combined resources of a number of partners.
3. Specialization in management is possible as each partner may participate in the field in
which he has experience and training. For example, if a hairdresser were in partnership with
someone with a business background, one could concentrate on providing the salon service,
and the other on handling the finances.
4. In a partnership, the work load can be shared among the partners. This makes it possible for
a partner to take a vacation, and, on the death of a partner, the remaining partners can
continued to run the business on their own or they may find a new partner.
5. A partnership can progress or grow into a large company.

2. Public Limited Companies:

1. There is easy access to capital for expansion.

2. Specialists or experts are hired to run the company.
3. The PLC is independent of its owners.
4. Shares are offered to general public.
5. Risk is spread over many shareholders.

Weaknesses:
1. Unlimited Liability Partnership:
1. All the partners stand to lose if one partner makes a mistake.
2. It is more risky as there is more to lose. If the business encounters heavy levels of
liability and go into liquidation - the business owners personal belongings may be at
risk.
3. Capital is still limited.
4. Danger of disagreements between the partners. Obviously people are likely to have
different ideas on how the business should be run, who should be doing what and what
the best interests of the business are. This can lead to disagreements and disputes
which might not only harm the business, but also the relationship of those involved.
5. The distribution of profits can cause problems. The deed of partnership sets out who should
get what, but if one partner feels another is not doing enough, there can be dissatisfaction.

2. Public Limited Companies:

1. The objectives of the managers may be different from shareholders (owners).

2. Small powerful groups, e.g. insurance companies, may dominate the company.
 3. Workers feel left out in decision-making.
4. Over-expansion can lead to diseconomies of scale.
5. Accounts must be submitted annually for inspection.

Question 2:
Owners have to employ others (managers) to carry out their businesses. A similar example is if you want
to go on a holiday, you will go to travel agent for the arrangements rather than estate agents.

The main advantage managers have over their owners (shareholders) is their specialty, knowledge,
information and command over the business. For e.g. owners hire a CFO for their specialty and
understanding of financials and good knowledge of market financials. In this situation, where managers
have more knowledge than the owners, means that it will be very difficult for the owners to judge in
whose interest the managers are working. Here, the managers objectives may diverge from that of the
owners. May be they pursue their own goals rather than companys/ owners goals. For e.g. the estate
agent may try to convince you to accept the lower price because it will save his time, effort and expense.

One other reason is that owners (shareholders) have imperfect information about the managers
performance or what they exactly are doing and thus owners will be at weak position as compared to
managers.

To ensure that managers act in owners interest rather than their own, owners could monitor the\
performance of their senior manager through attending Annual General Meetings and the managers
could be questioned by shareholders and could be replaced over bad performance. Another option is to
create a series of incentives to ensure that managers act in owners interest. For e.g. profit sharing,
share offers, good rewards on good performance etc. This will ensure that managers work with heart for
the owners interest and companys goals.

Question # 3:
STEEPLE Analysis of UK Car Industry:

SOCIAL FACTORS: The consumers are around the age 45 and the young population is constantly
decreasing thus industry could increase its revenues by 5% by focusing on the growing older
populations, family plans, consumer behavior or the spending culture and budget for e.g. understanding
needs of the customers like 80% of the vehicle sales are to corporate bodies and 20% of the market is
retail.

TECHNOLOGICAL FACTORS: UK car manufacturers are heavily using the technology to embrace the
CO2 technology. Also, a lot of focus is put on developing the hydrogen propelled cars. A new team has
been formulated called NAIGT (New Automotive Innovation Growth Team) with a twenty years vision
for the automotive industry, which focuses on creating a transformed business environment,
formulating technology road maps for CO2 emission free vehicles and hydrogen propelled cars.
ECONOMICAL FACTORS: Economic factors that affect the UK car industry are the overcapacity and
saturation in the markets of UK. Other economical factor is the prices of the raw materials and the
essential commodities like fuel, diesel. If the oil charges are high it will be hard to retail the exceptional
and luxury vehicles. Customers prefer efficient mileage cars.

ENVIRONMENTAL FACTORS: Environmental factors, Environment pollution, is one of challenging issues

threating the world. Transformation of technology into alternative energy vehicles, reduce emissions.
Today's customers are ones of victims of Co2 emissions, hence in a future customer will prefer
alternative energy vehicles to preserve the environments.

POLITICAL FACTORS: The political factors affecting the UK car industry was for e.g. the decision of the
government to investigate the UK car market, when MG Rover sales had dropped and also when it was
almost doomed. And other rules passed by the government those impacts the UK car industry in
anyway.

LEGAL FACTORS: The European Commission is the global legislature, which affects the automotive
industry in UK. The commission passes the regulations that are progressive and feasible. The recent
developments are including the directives of total vehicle recycling and improvements in the pedestrian
impact act (CarDesignOnline n.d.).

ETHICAL FACTORS: This may include the reduced noise cars which will have less effect on other people,
it also includes the cars which use other energy mediums to run and emit less pollution because using
traditional cars will have more pollution that will affect peoples health.

Business Strategies
The UK Automotive industry is recovering from the slowdown. The economic factors like overcapacity
and saturation are being kept in control. As a car manufacturer I must target the population with age 45
or less and I should also target the business oriented people because 80% of the consumers are business
oriented people. Apart from this I must also pursue the latest technologies like Hydrogen powered
vehicles or electric cars to cut down CO2 emission.

Question # 4:
A Standard Industrial Classification (SIC) was first introduced into the United Kingdom in 1948 for use in
classifying business establishments and other statistical units by the type of economic activity in which
they are engaged.
The classification provides a framework for the collection, tabulation, presentation and analysis of data
and its use promotes uniformity. In addition, it can be used for administration purposes and by non-
government bodies as a convenient way of classifying industrial activities into a common structure.

The first limitation is mistaken classification of employee groups. For example, administrative assistants
in the automotive industry support all levels of the business, yet the SIC defines these employees as part
of the "Basic Sector" of manufacturing jobs when they should be reported as "Non-Basic." Secondly, SIC
codes were developed for traditional industries prior to 1970. Business has changed considerably since
then from manufacturing-based to mostly service-based. As a result, and thirdly, the SIC has been slow
to recognize new and emerging industries, such as those in the technology sector.

Question # 7
(a) Macro. It refers to a general rise in prices across the whole economy.

(b) Micro. It refers to specific industries

(c) Either. In a world context, it is a micro issue, since it refers to the price of one currency in terms of
one other. In a national context it is more of a macro issue, since it refers to the euro exchange rate at
which all UK goods are traded internationally.

(d) Micro. It refers to specific products.

(e) Macro. It refers to the general growth in output of the economy as a whole.

(f) Micro (macro in certain contexts). It is micro because it refers to specific industries. It could, however,
also help to explain the macro economic phenomena of high unemployment or balance of payments
problems.

Question # 5
1. Market Structure >> Microeconomic issue.
2. Competition >> Microeconomics
3. Government Policy >> Macroeconomics
4. Technology >> Macroeconomics
5. Social & Political Environment >> Macroeconomics
6. Demand & Supply >> Microeconomic issue
7. Inflation >> Macroeconomic issue
Question # 8
(i) I went to hospital due to some emergency and thats why my official work got affected. The
opportunity cost for this act is my office work because if I would be at office, I could do the
work which I missed.
(ii) I ordered Pizza in yesterdays Iftar which was expensive. The amount I spent on Pizza could
be used to buy some other food with some amount saved, so the opportunity cost for this
would be the money which I spent on Pizza and I could easily save it.
(iii) I went to hospital on Careem car service and I paid Rs. 250, and I did not use bike to go to
hospital which would hardly cost me Rs. 100. The opportunity cost for this is Rs. 150 which I
spent extra to go to hospital on car service.

Question # 6
Air

Air is not scarce, in one sense it is abundant. There is no shortage of air to breathe for most people for
most of the time.

But if we define air as clean, unpolluted air, then in some parts of the world it is scarce. In these
cases, resources have to be used to make clean air available. If there is pollution in cities or near
industrial plants, it will cost money to clean it up. The citizen may not pay directly - the cleaned-up air
may be free to the consumer but the taxpayer or industry (and hence its customers) will have to pay.

Another example is when extractor fans have to be installed to freshen up air in buildings.

Even if you live in a non-polluted part of the country, you may well have spent money moving
there to escape the pollution. Again there is an opportunity cost to obtain the clean air.

Water

Whether water is abundant depends again on where you live. It also depends on what the water is used
for.

Water for growing crops in a country with plentiful rain is abundant. In drier countries, resources have
to be spent on irrigation.

Water for drinking is not abundant. Reservoirs have to be built. The water has to be piped, purified and
pumped.
Question # 9
I would analyze that how much money I got by selling the old car and how much I am paying extra for
the new car. I would analyze what benefits I am getting from new car, for e.g. old car was having engine
issues and was consuming more oil that was costing me higher, after changing the car this issue will be
resolved and its giving me marginal benefits by paying some additional amount.

I will analyze that if I study one more hour then what will be the benefit of studying extra. If one extra
hour is helping me out for future then I will invest an extra hour because its giving me marginal benefit.

If a firm wants to purchase a new machine then they will need to analyze that how much the machine is
going to cost, what will be the effect of that new machine on production of each unit and how much the
revenue can be generated, if the new machine is going add more to the firms revenue than its costs,
then it will be profitable to purchase the machine and it will give marginal benefits by paying the
machines cost. For e.g. if current production without paper cutting machine $10 per bundle and after
purchasing the machine it will be $5 per bundle then obviously the cost will be reduced and the revenue
will be increased.

As a firm, if giving overtime to existing workers increasing the production and ultimately increasing the
revenue then its marginal benefit for the company and firm should pay the marginal cost to workers. For
e.g. there is a demand of 10,000 bundles of papers in 2 days and current workers can produce 8000
bundles within their allocated time then firm will lose the revenue and may also lose the order thats
why its better to pay overtime to existing workers to meet the need and to generate revenue.